Risk Mitigation Obligations

The material impact for Swiss domiciled entities (banks, insurance companies, fund management companies, commodities traders, pharmaceutical and/or industrial companies) of the ESMA Final Draft OTC Derivatives Risk MitigationTechnical Standards on the risk mitigation measures that have to be implemented under EMIR and the Swiss Financial Market Infrastructure Act (FinfraG/FMIA).

The European regulators (ESMA, EBA and EIOPA) have issued the final draft of regulatory standards on risk-mitigation techniques related to OTC derivatives trading. These provisions apply to most Swiss-domiciled entities trading in OTC derivatives with an EU-domiciled entity, and will (indirectly) also affect the implementation of the risk mitigation measures under FinfraG at Swiss-domiciled entities falling within the scope of application of FinfraG/FMIA. The new standards will enter into force in the next couple of months, although they must technically still be approved by the European Commission. This publication gives a short overview of the main areas addressed by the new provisions.

Please contact with any question about the publication Günther Dobrauz or your previous contact at PwC.

 

 

FinTech: Embracing the people opportunity

There has been a lot of talk about Financial Technology (“FinTech”) companies in recent months. The increasing use of technology to deliver financial services is not new, but recent advances in technology, digital security and processing power are unlocking opportunities for companies to completely rethink the way in which these services are provided, disrupting accepted business models along the way.

Many commentators to date have focused on the impact this will have on the provision of services and the structure of the market, but another important issue to consider is the people aspect. It is people, after all, who develop the innovative and groundbreaking solutions that will cause tremors through the industry.

But where should you start? If an organisation is to be successful in this new world, attracting and developing the right talent will be crucial.

People challenge What can HR do?
How do we develop the skills to be successful in this new market? Focus on innovation and agility to react quickly to change.Redesigned performance management to foster teamwork and “fail-fast” mindsets that promote innovation.Rethinking organisation structures to emphasise flatter, team based structures.
How do we remodel our own processes to attract talent? Develop 21st Century HR processes that deliver HR services through digital channels and cloud-based solutions across the employee life cycle.
How do we develop a FinTech-friendly employer brand? Develop a set of values that speak to innovative talent which is looking for a “grand challenge” to solve.Use events such as business incubators or “elevator pitch” investment programmes to engage with potential future talent.

Many of these changes relate to the culture of the business, something currently on the minds of FinTech start-ups as one of the potential barriers to effectively working with traditional businesses.

FinTech

This week sees the release of “Blurred Lines”, PwC’s global survey looking to assess the attitudes and emerging trends associated with FinTech. This survey provides some great food for thought, both for existing FS organisations and for those wanting to get in on the action with their own start-up.

There is a great deal to think about in this area, and we will see significant changes in people processes across the industry in the coming years. This presents an exciting opportunity for HR to be a strategic partner to the business when leadership are defining their response and group strategy for FinTech. You can access our survey here.

If you’d like to discuss your plans for introducing FinTech with an expert, please feel free to contact Stuart Jones.

PwC at the forefront of new auditor reporting

PwC recently issued the first auditor’s report in Switzerland under the new reporting requirements. The IAASB (International Auditing and Assurance Standard Board) issued these requirements in response to a demand for more informative auditor reporting in the wake of the financial crisis.

The new auditor’s report constitutes a revolution in auditing – it’s a game-changer for shareholders, investors, clients and the audit profession and goes beyond just a redesigned boilerplate report. The reports will help organisations and their auditors to build trust in the capital markets and to enhance the reputation of all involved.

Greater insight and transparency

The most significant innovation involves the ‘key audit matters’. This new section of the report sheds light on matters that, in the auditor’s judgment, were of most significance in the audit of the financial statements of the current period. It also describes how the auditor addressed these matters. This bespoke description of key areas of focus in the audit gives the auditor an opportunity to provide meaningful comments and explanations.

Going concern also receives more visibility in the new auditor’s report. Both the management’s and the auditor’s responsibilities regarding going concern are included.

We believe these changes will help translate the new reporting requirements into added transparency and trust – to the lasting benefit of our clients and their stakeholders.

In Switzerland, this new reporting requirement will come into full effect for audit reports for financial statements of listed companies for period ending on or after 21 December 2016, but early application is permitted. This new reporting style is already in place in the UK and the Netherlands.

For further information read our Disclose article.

Please contact Matthias Jeger or your usual PwC contact if you have any questions or wish to discuss these or other aspects of the new auditor’s report.

 

Creating a platform for competitive regeneration

19th Annual Global CEO Survey/February 2016

In this year’s survey, global business leaders voice fresh concerns about economic and business growth. At the same time, they see a more divergent and multi-polar world where technology is transforming the expectations of customers and other stakeholders. In ‘Redefining business success in a changing world’, we explore how CEOs are addressing these challenges. We surveyed 1,409 CEOs in 83 countries and a range of industries in the last quarter of 2015, and conducted face-to-face interviews with 33 CEOs.

Key findings in the banking and capital markets sector

 

CaptureBanking and Capital Markets (BCM) organisations are facing the immediate challenges of economic and political uncertainty and the longer term impact of new technology, more exacting regulation and shifting customer expectations.

Some long-established business models are struggling to sustain competitive relevance in the wake of these developments. In turn, new entrants are changing the competitive playing field and blurring industry boundaries. But today’s market shake-up also opens up significant opportunities for reinvigorating growth and re-engaging with customers, employees and society as a whole.

In this report, we explore some of the key challenges and opportunities that are reshaping the BCM industry, focusing in particular on how to sustain returns in the face of uncertainty and change; how to navigate industry transformation and how to respond to changing customer, investor, employee, regulator, tax authority and other stakeholder expectations. We also look at how to define and measure success in this changing landscape.

If you are interested in reading more, please access our full report on the banking and capital markets sector “Creating a platform for competitive regeneration” here.

 

To see all results of the 19th Annual Global Survey, please visit http://old.pwc.ch/ceosurvey

 

 

The EU Securities Financing Transaction Regulation and its Effects on Swiss Companies

New EU requirements governing the transparency and reuse of collateral in the form of financial instruments for Swiss entities

Since 12 January 2016 new rules have been in force in the EU governing the repledging and reuse of certain types of collateral. Although these are EU rules, in some situations they may have an extra-territorial impact on Swiss entities that enter into securities financing transactions from a branch domiciled in the EU or repledge financial instruments granted to them by counterparties domiciled in the EU. This means that the rules particularly affect securities lending and borrowing, repo, OTC and trade finance transactions carried out by banks and securities dealers.

Find out more about the new transparency rules here.

If you´re interested in this topic or have any questions connected with it, please feel free to contact our experts Guenther Dobrauz or Martin Liebi.

Guenther Dobrauz, Partner
Leader Legal FS Regulatory & Compliance Services
Office: +41 58 792 14 97
Email: guenther.dobrauz@ch.pwc.com
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

Martin Liebi, Senior Manager
Head Capital Markets within Legal FS Regulatory & Compliance Services
Office: +41 58 792 28 86
Email: martin.liebi@ch.pwc.com
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

Global pension risk – How do Swiss multinationals compare to their peers

Bild_Pension_BlogLower long-term interest rates look here to stay. People are living longer. Finding positive real investment returns with an acceptable level of risk is getting tougher. All of these factors are putting pressure on the costs of retirement.

Our 2014 survey of corporate attitudes about global retirement provision showed the global trend towards defined contribution pension plans which place the risk of financing retirement on employees. While this trend continues, the legacy of past promises made by corporates remains.

Our analysis of the latest financial disclosures of 587 companies across Europe shows the continuing and growing impact retirement obligations have on balance sheets and corporate results. Our study looked at companies with market capitalisations over €1bn, including 71 Swiss corporates. This showed that:

  • The 71 Swiss multinationals in our analysis had total defined benefit obligations of €204bn.
  • These obligations were on average 16% of market capitalisation (value of shares in circulation).
  • Assets to cover 85% of these obligations, a fall of 5% compared to 2013/14.
  • Annual payments by Swiss companies to defined benefit plans were of 2.4% of the obligations (i.e. €4.9bn), equivalent to 0.3% of shareholder value a year.

You can find our full analysis here.

Solving these challenges needs a clear global strategy combined with local actions and plans to execute risk reduction. Our 2014 survey outlines some of the options and approaches available to multinationals: http://www.pwc.com/gx/en/services/people-organisation/publications/global-pensions-survey.html

 

Action required: the new regulations on OTC

Action required: the new regulations on OTC derivatives will enter into force on 1 January 2016, affecting entities in all industries – including non-financial services.

The new Swiss Financial Market Infrastructure Act (FMIA) will impose new obligations on entities in many industries, such as (but not limited to) banking, finance, pharmaceuticals, chemicals, consumer goods and others with derivatives on their books. The first obligations of the FMIA will begin to take affect as soon as 1 January 2016.

Which derivatives are affected?

All derivatives, meaning financial contracts whose value depends on one or several underlying assets and which are not cash transactions, are subject to the clearing, reporting and risk-mitigation obligations, with the exception of:

  • Structured products
  • Securities lending and borrowing as well as repurchase agreements
  • Commodities derivatives if physically delivered, not traded on a venue, and not settled in cash upon unilateral choice
  • Currency swaps and forwards settled on a payment versus payment basis (the reporting obligation however still applies)

Will I be affected?

You will be affected if you are either a (small) financial counterparty or a (small) non-financial counterparty. A financial counterparty (FC) is any (Swiss-domiciled) bank, securities dealer, insurance and re-insurance company, parent company of a financial or insurance group or financial or insurance conglomerate, fund management company, or asset manager of collective investment schemes, collective investment schemes, occupational pension schemes and investment foundations (art. 48 et seq. OPA). To be classed as small, an FC requires a rolling average for its gross position in all outstanding OTC-derivatives transactions, calculated over 30 working days, that is below the threshold of CHF 8 billion of all outstanding OTC derivatives of all group companies.

A non-financial company (NFC) is any company which operates outside the finance industry. To be classed as small, an NFC requires gross positions in relevant outstanding OTC-derivatives transactions, calculated over 30 working days, that are below the following thresholds: CHF 1.1 billion (equity and credit) and CHF 3.3 billion (interest rate, commodities and other derivatives).

 What are my obligations?

In general, companies trading in derivatives subject to the FMIA must comply with the following obligations:

  • Clearing: clearing of certain derivatives which are designated OTC derivatives by the Swiss Financial Market Supervisory Authority (FINMA) via a FINMA-approved or recognised central counterparty is required, unless a small FC/NFC is involved.
  • Reporting: all derivatives (including exchange-traded derivatives) must be reported to a trade repository no later than one working day following the transaction.
  • Risk mitigation: OTC derivatives not being cleared are generally subject to risk-mitigation duties such as confirmation, reconciliation, dispute resolution, portfolio compression, valuation and an exchange of financial guarantees, unless exemptions apply to the small FC/NFC in question.
  • Trading on a trading venue: certain FINMA-designated derivatives might, at some point in the future, be subject to the obligation to be traded on a trading venue.

When do my obligations enter into force?

According to the consultation documents, the first obligations under the FMIA will enter into force on 1 January 2016.

These obligations require written documents setting forth how you clear over a central counterparty, establish the thresholds, report to the trade repository, implement risk measures and carry out trading. In case of a bank, it must ensure that an arranged postponement of termination of contracts by FINMA (based on Art. 30a BA), is enforceable.

What are my key considerations?

  • An impact analysis of how your business activities/group will be affected by the FMIA.
  • To what extent will you be able to rely on the processes and documentation that have been set up for EMIR purposes?
  • To what extent will you be able to rely on foreign legislation to fulfil your obligations under the FMIA?
  • To what extent will you be able to outsource the fulfilment of your obligations to a group company or third party?
  • To what extent will you have non-cleared derivatives on your books requiring the implementation of complex risk-mitigation measures?
  • Which OTC-derivatives obligations are affecting your activities?
  • With which financial market infrastructure(s) in which jurisdiction(s) do you want to fulfil your obligations?
  • When will you have to implement these obligations?

 

Find out how the new regulations on OTC derivatives are affecting your business and contact:

Guenther Dobrauz, Partner
Leader Legal FS Regulatory & Compliance Services
Office: +41 58 792 14 97
Email: guenther.dobrauz@ch.pwc.com
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

Martin Liebi, Senior Manager
Head Capital Markets within Legal FS Regulatory & Compliance Services
Office: +41 58 792 28 86
Email: martin.liebi@ch.pwc.com
PricewaterhouseCoopers AG Birchstrasse 160 | Postfach | CH-8050 Zurich

German business becomes simpler for Swiss banks

The Swiss Financial Market Supervisory Authority (FINMA) and Germany’s Federal Financial Supervisory Authority (BaFin) recently agreed to a ‘simplified exemption procedure’ and the corresponding measures. This accord makes it easier for Swiss banks to gain entry to the German market.

Get some details and find out more in our attached summary.

German business becomes simpler for Swiss banks

Female millennials in financial services

Female Millennial in FSStrategies for a new era of talent

Diversity and inclusiveness are now competitive imperatives within an evolving financial services (FS) marketplace; investors want it, boards want it and clients demand it.

As businesses look to broaden their talent pool and attract people with fresh ideas and experiences, nearly 60% of the FS industry leaders taking part in PwC’s latest global CEO survey say their organisation now has a strategy to promote diversity. More than three-quarters of these CEOs believe that diversity has enhanced innovation, customer satisfaction and overall business performance.

Female millennials are set to play a critical part in future FS growth. With many organisations still finding it difficult to root out aspects of their culture which could lead to excessive risk-taking or regulatory breaches, attracting more women at all levels of the organisation could provide the catalyst for a real shift in attitudes and behaviour.

So what does the generation of women entering the workforce and moving into management positions want from the organisations they work for? We’ve just carried out a survey of more than 8,000 female millennials (women born between 1980 and 1995) from around the world, of which nearly 600 are working in FS (banking and capital markets, insurance and asset management). The findings provide valuable insights into the perceptions, aspirations and characteristics of women in FS, which can help your business to define and refine strategies for recruitment, retention and career development.

Download the full report here.

If you have any further questions please contact me.